Banking deregulation in the early 1980s opened the way for banks, savings and loans institutions, and their affiliates to offer investment products and services previously offered only by broker-dealers and other nonbank securities firms. Many banks jumped at the opportunity to compete for the billions of dollars that customers had diverted to stocks, bonds, and mutual funds in search of higher yields than those offered by traditional bank savings accounts and certificates of deposit (CDs).
However, by the mid- 1990s, regulators, politicians, and courts were hearing mounting numbers of allegations that banks and their affiliates were using misleading sales practices to deliberately muddy the distinction between FDICinsured bank products and traditionally noninsured brokerage products, and that they were using confidential bank customer information to generate brokerage-product sales leads.
Great Western Bank is the principal subsidiary of Great Western Financial Corporation ( GWFC), a diversified financial services company with assets of more than $42 billion. 3 Great Western Bank has branches in California and Florida and counts a large pool of senior citizens among its customers. In 1983, the parent corporation established a brokerage subsidiary called Great Western Financial Securities Corporation ( GWFSC). In 1989, looking to improve its profitability, GWFSC developed a portfolio of proprietary mutual funds called "Sierra Trust" mutual funds. The non-FDIC insured mutual funds were advertised and sold in Great Western Bank branches by commission-based brokers employed by the brokerage. According to a business press report, Great Western undertook an intense and successful marketing effort to attract investors to its Sierra Trust funds. 4 By 1995, Great Western had reportedly drawn $2.8 billion into its Sierra Trust funds, which caused the institution to be ranked 17th in retail mutual fund assets among all banks and thrifts. 5